1976 (12) TMI 2 - SC - Income Tax

When there is an automatic rise in the dearness allowance linked to a cost of levying index, the automatic payment after the appointed day should be deemed to be additional dearness allowance liable to compulsory deposit provisions of the Act - revenue s appeal is allowed

Summary

Issues:
Interpretation of the Explanation 1 to section 2(b) of the Additional Emoluments (Compulsory Deposit) Act, 1974.

Analysis:
The judgment of the Supreme Court pertains to an appeal from the High Court of Gujarat involving the interpretation of the Explanation 1 to section 2(b) of the Additional Emoluments (Compulsory Deposit) Act, 1974. The dispute arose regarding the payment of dearness allowance (D.A.) to workers linked to the cost of living index. The Act defined "additional dearness allowance" as D.A. sanctioned after the appointed day, with Explanation I clarifying that any automatic payment of D.A. due to a rise in the cost of living index shall be deemed as additional D.A. The central issue was whether the rise in the cost of living index had to occur after the appointed day for the additional D.A. to be applicable.

The Supreme Court analyzed the legislative intent behind the Act and the purpose of Explanation I. It highlighted that the key aspect was the sanctioning of additional D.A. after the appointed day, emphasizing that the automatic rise in D.A. linked to the cost of living index was deemed as additional D.A. to avoid controversies. The Court clarified that the focus was on the sanctioning of D.A. after the appointed day rather than the timing of the rise in the cost of living index.

The Court rejected the contention that the rise in the cost of living index had to be after the appointed day for the additional D.A. to apply. It emphasized that the crucial factor was the payment of D.A. after the appointed day due to the rise in the cost of living index, even if the index increase occurred before the appointed day. Therefore, the Court held that the specified percentage of additional D.A. was deductible under the Act, contrary to the High Court's decision.

In conclusion, the Supreme Court allowed the appeal, setting aside the High Court's judgment. The Court clarified that the rise in the cost of living index did not need to be after the appointed day for the additional D.A. to be applicable, focusing instead on the payment of D.A. after the appointed day due to the index increase.